ASC- accounting is a service activity. Its function is to provide quantitative information primarily financial in nature that is intended to be useful in making economic decisions. Identifying as the analytical component 5. Measuring as the technical component 6.
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Monetary unit 4. Accounting entity 4. Income recognition principle 5. Standard of adequate disclosure 5. Time period 6. Comparability 6. Going concern and cost principle 7. Matching principle 7. Accounting entity 8. Cost principle 8. Materiality 9. Reliability 9. Completeness or standard Time period of adequate disclosure Conservatism or prudence Problem 1.
The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter.
This is in conformity with the systematic and rational allocation principle of expense recognition. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off.
The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy.
The CSV should be classified as noncurrent investment. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for. The depreciation is not dependent on the amount of profit generated during the year.
Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations.
The increase in value of land and building should not be taken up in the accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,, is not necessarily the revalued amount of the land and building.
Moreover, increase in value is not an income until the asset is sold. Problem 1. Accrual assumption 6. Income recognition principle 2. Going concern assumption 7. Expense recognition principle 3. Asset recognition principle 8. Cause and effect association principle 4. Cost principle 9.
Systematic and rational allocation principle 5. Liability recognition principle Immediate recognition principle Problem 1. Monetary unit assumption 6. Substance over form 2. Cost principle 7. Materiality 8. Comparability or consistency 4. Time period 9. Conservatism or prudence 5. Matching principle Adequate disclosure or completeness Problem 1.
The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying.
The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable.
The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.
The entry is incorrect because no revenue shall be recognized until a sale has taken place. Purchased goodwill should be recorded as an asset.
Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment. Accrual 2. Going concern 3. Monetary unit 6. Book Cost depr.
B Problem a. Cash , Accounts payable , b. Cash 50, Accounts payable 50, c. Accounts receivable , Cash , d. Cash on hand , Postdated check , Adjusted cash on hand , 2. Petty cash fund 20, Unreplenished petty cash expenses 2, Postdated employee check 3, Adjusted petty cash 15, 3.
Security Bank current account 1,, Postdated company check delivered , Adjusted balance 1,, 4. Accounts receivable , Cash on hand , Expenses 2, Receivable from employee 3, Petty cash fund 5, Security Bank current account , Accounts payable , 28 Problem 1. Cash on hand , NSF customer check 40, Postdated customer check 60, Adjusted on hand , 2.
Cash in bank 2,, Undelivered company check , Postdated company check delivered , Adjusted cash in bank 2,, 4. Cash on hand , NSF customer check 35, Postdated customer check 15, Adjusted cash on hand , 2. Petty cash fund: Currency and coins 5, 3. Philippine Bank current account 5,, Undelivered company check 25, Postdated company check delivered 45, Adjusted balance 5,, 4. Petty cash fund 10, 1.
Petty cash fund 10, Cash in bank 10, Cash in bank 10, 2. Postage 1, 2.
Financial Accounting 1 Summary VALIX
Financial Accounting Volume One
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